Prof G Markets: Apple's High Yield Savings Accounts, Shifting to Bonds, and AI vs. IP

This week on Prof G Markets, Scott shares his thoughts on how Apple just became one of the largest banks by market capitalization in the world. He also explains why he’s thinking of shifting some of his portfolio to bonds, and discusses why Reddit wants to charge AI companies for access to its API. Learn more about your ad choices. Visit podcastchoices.com/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:01Scott Galloway?

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• 0:48Speaker 01

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• 1:18Scott Galloway?

  This week's number, $500. That's how much the South Korean government is paying reclusive kids per month to go outside. I spent my entire childhood inside. As a matter of fact, I used to walk in on my parents having sex all the time. Worst 45 minutes of my life.

• 1:47Scott Galloway?

  Welcome to Prop G Markets. Today, we're discussing Apple's High Yield Savings Account. That's right, that was a good segue. And a roundup of the latest developments in AI. Here with the news is Prop G Media Analyst Ed Elson. Ed, how are you?

• 2:03Ed Elson?

  I'm terrible, Scott. I've had the worst two weeks of my life without you.

• 2:05Scott Galloway?

  Really? Oh, that's right.

• 2:06Ed Elson?

  I've missed you.

• 2:07Scott Galloway?

  So what have you been doing the last two weeks? Did you go on vacation? What did you do?

• 2:10Ed Elson?

  I was still working, working on No Mercy, fact-checking your book, which, by the way, I think is going to be your best book ever, not to give too much away.

• 2:19Scott Galloway?

  That's right. And what is it you like so much about my book, Ed?

• 2:24Ed Elson?

  Can we talk about it? I don't know if we've gotten the go ahead to talk about what this book is.

• 2:28Scott Galloway?

  I had, I don't know if you've heard, but I own this taco stand. We can talk about whatever the fuck I want.

• 2:32Ed Elson?

  It's called The Algebra of Wealth and it's basically takes a lot of the insights that we've developed on this podcast and puts them in writing with extremely actionable advice for young people and honestly, up to, you know, any age about how to get rich and how to build financial security. And I just was going through and fact checking stuff and there weren't too many errors, but it was incredibly informative. And I'm just, I can't wait for this book to release.

• 3:03Scott Galloway?

  Yeah. Well, thanks for saying that. We tried to do something. I have figured it out, but it took me a long time. And I thought to myself, how could I have figured it out sooner? And that's what we're trying to do here. But anyways, enough about how awesome we are. Talk to us about the news.

• 3:17Ed Elson?

  Let's start with our weekly review of market vitals.

• 3:26Ed Elson?

  The S and P 500 was stable as earnings rolled in. The dollar was also stable. Bitcoin hit a high for the year above $30,000 before plunging again. And the yield on 10-year treasuries tumbled after four straight days of gains. Shifting to the headlines, UK inflation hit 10.1% year over year in March. That's down slightly from 10.4% a month earlier, but still a disappointment. UK inflation hasn't dropped below double digits since last summer. China's economy expanded 4.5% in the first quarter of the year. That's a strong rebound from 2022. Throughout last year, GDP growth was roughly 3% as the country dealt with its zero COVID policy.

• 4:10Ed Elson?

  Meanwhile, India is set to surpass China as the world's most populous nation by 2023. Side note, Apple also just opened its first flagship store in India, which has the second largest smartphone market in the world. Tesla reported earnings and it was a miss. First quarter profits declined 24% year over year. That's largely due to the company's recent price cuts. Its most popular car model is now 30% cheaper than it was at the beginning of the year. And Tesla shares fell more than 8% after its report. And finally, Netflix missed expectations on revenue but beat on earnings per share. It also announced it will delay its crackdown on password sharing until the second quarter. The company anticipates that will boost subscriptions and revenue when viewers are

• 4:54Ed Elson?

  booted off of shared accounts and forced to pay up. Your thoughts, Scott?

• 4:59Scott Galloway?

  So the Netflix one is interesting. You would think, well, why wouldn't they crack down on password sharing just as a general practice? And I guess a certain amount of breakage or leakage or sharing is a good way to get people hooked on content and then move in and say, all right, now it's time to pay. So let them steal it, give it to, you know, it's almost like a free trial if you let people borrow their passwords and then they get hooked on a certain program or that type of programming. And then the additional paying customers will get when they clamp down pays for the lost revenue. Tesla, it's just super interesting. That's dramatic. Think about that, a car that is 30% less than it was at the beginning of the year. I mean, can you imagine if you bought the car in November of last year and now it's 30% cheaper?

• 5:41Ed Elson?

  Yeah.

• 5:42Scott Galloway?

  And then the big one, I think, population is going to be a big issue. I'm fascinated by demographics. India being the most populous nation in the world is really fascinating. About 30 years ago, if you had asked a bunch of analysts, who was going to be the economic superpower of the 21st century? It would have been split. Some would have bet on China, some would have bet on India. And China, obviously incredible manufacturing, huge consumer economy, there are some real efficiencies to an autocracy, you can kind of just get shit done really quickly. But India was a democracy, largest democracy in the world, more English speakers. So we thought, being kind of biased towards our system, a lot of people thought India was going to be the economic juggernaut to watch out for.

• 6:26Scott Galloway?

  And boy, did we get it wrong. China has blown by India. A lot of it is population, though. When you have a huge middle class and you have innovation and an economy that's growing, you end up with a ton of consumption and economy that just booms. What they also have is there's something called a dependency index, and that is what percentage of the population is being supported by people who are still working. China, because of its one child policy, is going to end up with a large dependence ratio at some point. So I think a lot of smart people who are informed by really intelligent economists, i.e. Apple, have decided they need to start investing. In India. And the number that I find really shocking is the UK's inflation is at 10%.

• 7:11Scott Galloway?

  It's by far the highest in all of Europe. And you really see it in food prices here. I think food's up 16 or 17%. And there are just few nations that could have fucked themselves more, other than maybe Russia's invasion of Ukraine, than what Britain did with Brexit. It just, they basically made all their goods more expensive. And at the same time, reduced exports, bringing down salaries or bringing down economic growth. So the standard of living for all citizens or the majority of citizens in the United Kingdom has declined. And at the end of the day, the government is supposed to prevent these boneheaded decisions. This was just a disaster. David Cameron, absolutely strategic blunder, thinking that this would be rejected. It wasn't. It passed. Few people have done more damage to the UK than Nigel Farage.

• 7:57Scott Galloway?

  And I wonder how they get out of this. I wonder if it's a slow burn back or, I mean, I'm just fascinated by this, what is probably the biggest self-inflicted wound of the last 50 years in the West. And that is, well, there's probably more, I don't know, maybe Iraq.

• 8:10Ed Elson?

  I just want to shift back to Tesla for a second. So something I was seeing on Twitter today. Tesla used to boast that it had basically the highest margins of any other what's called an OEM, which is an original equipment manufacturer, i.e. you're a car company and you're making your own cars. That used to be their big point of differentiation. That's no longer the case with these price cuts. So just some numbers here. Tesla's gross margins now are 19%. And you compare that to Stellantis, which is 19.6, Volkswagen 20.1, Mercedes-Benz was 22.1, and the European average is 20%. And then obviously luxury, which is a whole different ballgame, that's 31%.

• 8:51Ed Elson?

  So it feels like this is a big hit to Tesla. Do you look at the margins situation and look at the price cuts as? A big problem for the business going forward?

• 9:02Scott Galloway?

  Margin is a great litmus test of your differentiation. So, brand is synonymous with differentiation and then kind of the ultimate litmus test of differentiation is your margins. And there's really kind of two ways to build a business or add stakeholder value. One is to pursue a differentiation strategy in LVMH. Dior or a Celine bag is highly differentiated in the eyes of the end consumer. Walmart's products are not differentiated. They sell ginger ale and Tide. That's an operations play where they try to be as efficient as possible. Their differentiation is operations and getting you, you know, more for less, if you will. So, margins are a pretty insightful tell around differentiation. And what do you have here in the EV market?

• 9:44Scott Galloway?

  You have an incredible decline and implosion in differentiation brought by competition. And that is a Tesla was wildly differentiated, as in singular, just two or three years ago. You wanted to buy an EV coupe that could go zero to sixty in three seconds and had a range of three hundred plus miles. It was not only differentiated, it was unique, it was the only one. And for a long time, its differentiation was reflected through incredible margins. Now, what's happened? Everyone's piled in, everyone's trying to grab share. So, it's very competitive from a pricing standpoint and they've been forced to lower their prices, which impacts their margins.

• 10:25Scott Galloway?

  Also, they've had some exogenous reasons to lower their prices and that is tax credits. But this is mostly the field just getting much more crowded and pricing pressure that results in a hit to margins. They also probably are decided to stay ahead of the curve because they want to get to a certain scale. Manufacturing in the auto business is a business of scale because once you make those multi-billion dollar investments in a factory, you want to punch out a lot of cars. So, my guess is they've done the math and said it's better to go for share. It's better to maintain share leadership, get to scale. But this is a massive There's just no getting around it. This is a huge hit to margins. I think we're going to see the stock come down dramatically. I think the company is going to begin to look like a traditional automobile firm,

• 11:09Scott Galloway?

  and that is a lower margin, difficult manufacturing-based business. And all the analysts who tried to pretend it was a software company to justify these ridiculous multiples on EBITDA are going to realize it's a company that wraps steel around four tires and a motor, and it's a great company. But already, its margins have gone from singular to kind of industry standard.

• 11:30Ed Elson?

  Okay, we'll be right back after the break with a look at Apple's high-yield savings accounts. Stay with us.

• 11:45Scott Galloway?

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• 12:27Scott Galloway?

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• 12:45Scott Galloway?

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• 13:29Scott Galloway?

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• 14:01Ed Elson?

  We're back with Prof G Markets. Apple has teamed up with Goldman Sachs to launch high-yield savings accounts for Apple Card users. The savings accounts will offer 4.15% in annual yield, which is more than 10 times the national average. It's also higher than what's offered by many big-name competitors, including American Express, Barclays, and even Goldman Sachs's consumer unit, Marcus. The account has no fees, no minimum deposit, and can be set up from within the Wallet app. So Scott, Apple says Goldman is operating these savings accounts. I take that to mean Goldman is doing the banking and Apple is just leveraging its technology. But Apple also has one of the biggest balance sheets in the world.

• 14:42Ed Elson?

  It's got $129 billion in assets, $21 billion of that is cash. Do you think the goal here for Apple is to eventually become its own independent bank?

• 14:52Scott Galloway?

  I don't know. I don't know if they need to. I think that, I think they want to focus on what they're good at, but effectively by becoming a bank, they're now the largest market-cap bank in the world. And what I was thinking about here was, we talk a lot about the absence of friction in tech being a danger, that a run on the bank can happen in an hour. Emails go out to everyone's phone, everyone reads their phone in a meeting, and it says, withdraw your funds from SVB, and they have an app, and they can initiate a wire and withdraw all of their funds in five or 10 minutes flat. There's just an absence of friction, and that has a lot of externalities, a lot of bad things.

• 15:32Scott Galloway?

  To me, this brings home the power and the potential of Apple because of a lack of friction. And that is, I use Apple Pay. And then maybe it pops up when I pay for something saying, do you want to round up this purchase and put it into a savings account, which yields on average five or 10 times what a traditional savings account does? And I say, yes. And then it says another prompt, would you like us to do this for every purchase? And do you want us to round up purchases under $10 to the nearest dollar? Purchases over $100 up to the nearest $10? And then it says, we estimate that you will do $700 or $800 a year. And then in 10 years, if you do this for 10 years at 4.2%, you're going to have, you know, $25,000.

• 16:13Scott Galloway?

  It just, they can so easily get money and assets and start providing financial services. And the analog, or the kind of digital, old school analog was you walk by a bank and it says, three month CD, 3.4%. And you're like, wow, that's a great rate. I'll come back tomorrow. What is the likelihood you'll find something better to do than going to the bank during business hours, wait in line, find out about this, fill out paperwork, transfer funds, fill out more paperwork? Well, guess what? All you need is an iPhone and you can make those sorts of transfers.

• 16:49Ed Elson?

  I want to go back to that 4.15% rate. So as Apple said, that's 10 times higher than the national average, which is 0.37%. That's the rate, that's the annual percentage yield that you get on an average US savings account. And to me, that is crazy because in the past year, Jerome Powell has raised the Fed Funds Rate, that's the risk-free rate, from 0.2% to 4.6%. That's in 12 months. And meanwhile, the average interest rate on a savings account has barely moved. So I did some research on this and every time that interest rates rise, the rise in the deposit rate barely moves with it. And then as soon as it declines, it sinks like a rock.

• 17:34Ed Elson?

  And it turns out that there's a term for this idea of the percentage of federal rate rises that pass through to savings account interest rate rises. And it's called deposit beta. And right now, deposit betas are at historic lows. It's around 20%. In other words, every percentage point that Jerome Powell raises rates, you'll only have a 0.2% rise in savings account interest rates. So my question to you, Scott, is this seems unfair for depositors, for just regular consumers with savings accounts. Why is that happening?

• 18:10Scott Galloway?

  So George Carlin, I remember watching one of his standups, of course, on TikTok. And he said something really that really struck me as insightful. He said that just because companies and institutions aren't directly coordinating, doesn't mean there isn't a conspiracy. And I think that banks wink and nod at each other and never put it down in email. But when interest rates go up, it's very sticky and very slow to pass on that incremental increase in interest rates to their depositors. And yet, when interest rates come down, it's immediate. Sorry, we're cutting the interest rate we're giving you. The same is true of gas prices. Oil prices skyrocket, boom. You see it, the price of the pump immediately in a step change increase.

• 18:52Scott Galloway?

  Oil prices come down and they gradually come down, they lag. And there's an asymmetry of information in that as most consumers are really busy, especially retail banking clients, and they aren't following the Fed. And they're used to getting 0.4% on their money. They're busy. Maybe they don't really understand basic finance. One of the big deltas in America or the big deltas in people's knowledge base is there's a lot of incredibly well-educated people that understand how to do derivatives, understand how to do calculus, but don't understand the interest rates. On their deposits and what it means and that they need to track this stuff. Cause the difference, four percent doesn't sound like a lot of money.

• 19:32Scott Galloway?

  But four percent, you know, versus one percent on a hundred thousand dollars over four or five years. That pays rent for your, you know, your daughter at college. It just, and it compounds. So you want to be very sensitive and constantly, you know, even putting out alerts, looking at interest rate increases. People don't think about the interest rates they pay on their credit card. Cause it doesn't seem like a lot when it's only, if it's 18% a year, well, that's only one and a half percent a month. Well, guess what? That year flies by and instead of paying 400 bucks, you're paying 472 and you keep rolling it. And before you know it, you owe double what you used to owe just four years later.

• 20:12Scott Galloway?

  So there is a conspiracy to make it really slow on movements and things you have to pay consumers or prices you pass through. When it's a benefit to the corporation. And, uh, you know, there's a direct correlation when it moves away from the consumer. And what it all comes down to is consumers need to be thoughtful and on their toes. And really need to understand this stuff. What Apple's doing here is clear. They have decided that in their next earnings call, they want to say, we launched this and we have seven jillion dollars in deposits almost overnight. The cocktail, the nitro and the glycerin of that frictionless ability to make deposits vis a vis the interface with the billion wealthiest people in the world.

• 20:55Scott Galloway?

  And the fact that they can afford to offer an above market interest rate. They are going to grab deposits like crazy. When they announce that in just a few weeks or a few months, they are now one of the biggest banks by deposits. Oh my gosh, the greed glands are going to get going for analysts and go, oh my God. Apple could become one of the biggest financial services companies in the world just overnight.

• 21:18Ed Elson?

  Yeah, I think another second order effect you'll see is that as everyone learns about this APY rate that they're offering, the competition for higher yields is just going to increase, which is ultimately going to have an inflationary effect on all savings account rates. I mean, you just won't be allowed to be offering a point three, seven percent rate on a savings account. Because everyone knows, oh, well, this company, Apple, they, they offer 4.15%. So it almost feels like. What Apple has done will be more consequential to consumer savings rates than anything that Jerome Powell has done in the past 12 months. And it's it's also interesting that we're that we're even talking about this because

• 22:00Ed Elson?

  it feels like for the past decade or so, while we've been in a in a zero interest rate environment, no one cared about APYs. Like, who who gives a shit about the interest rates on savings accounts? Because you you weren't really getting any.

• 22:15Scott Galloway?

  Yeah, the difference between point two and point two two didn't really mean much.

• 22:18Ed Elson?

  Exactly. And now everyone's waking up to the fact that, oh, we can get money for our money. And we're seeing all this interest in bonds and in money market funds and in treasuries. It's starting to feel like the global investment strategy is kind of changing. So my question to you is, has your personal investment strategy changed in the same way that the world seems to be?

• 22:40Scott Galloway?

  It has. But first, it's important, again, just to reinforce how important it is that people are good at money. And people say, I don't think about money. Well, you better think about money. Because if you want to be good at it, you want to be economically secure, just the way Roger Federer thinks about tennis a lot, you need to be thinking about money. You need to understand it. You need to understand some of the basics. And we talked about the inflation rate of 10% plus here in the UK. If you're one of these people not monitoring your bank account, and if you're not monitoring, I find your money, it means you're fucking up. It means it's the situation is worse than you think. So say they're one of those people that's getting 0.3% on their savings. And inflation is 10%. That means effectively, if you're making 80,000 pounds, congratulations, this year, you got a 10% pay cut.

• 23:24Scott Galloway?

  10% inflation, 0.3% on your savings, you are now effectively have purchasing power that has declined 9.7%. That's like your boss calling you in and saying, you no longer make 80,000 pounds a year, you make 72,000. So you need to be all over this stuff and always looking for yield and always looking For the lowest interest rate possible, even if it means taking money off a credit card and putting it onto another credit card because it's offering a lower APY, even if it means taking a loan against your house to pay off high interest credit cards, you always want to be figuring out ways to reduce the interest you are paying on anything and increase the interest rate that you are getting. As it relates to my own investment strategy, it has impacted it.

• 24:09Scott Galloway?

  And that is, for the first time, I'm actually thinking about investing in credit vehicles, or, you know, better known as bonds. I have never, I think I owned one bond once, I think I owned a bond in Gannett, the newspaper company, because I invested with Apollo, it was a good yield, I like newspapers, it felt like a pretty safe credit, I only owned it for about a year. But I'm thinking about buying bonds again. I've always owned stocks, and the primary benefit of bonds is, one, they produce cash flow, they have yield usually, or a coupon payment or interest payment paid to the owner of the bond. And also, they're, generally speaking, a safer bet, because if the company goes out of business, right?

• 24:51Scott Galloway?

  So say Bed Bath & Beyond is kind of careening towards bankruptcy, but there is some value there, the brand, the business, the stores that are profitable. So say it's worth a half a billion dollars. If it has $400 million in debt, the debtors get paid back that $400 million first, and then the equity would split the remaining $100 million. If it gets sold for $300 million, then the bondholders get that $300 million, they get 60 cents on the dollar, and the equity gets wiped out. The bottom line is, debt holders, or the bondholders, are at the top of the cap structure, meaning they get their money back first. So it's generally speaking, a better or an easier way not to lose money. But the hard part is, over the last 20 years, you haven't gotten really paid for that risk. You haven't gotten paid much.

• 25:36Scott Galloway?

  Now, that interest rates have accelerated, you can get decent yield in a vehicle that is traditionally, has a little bit less downside, or possible downside, is a little bit safer, and you get real yield. So for the first time, I'm looking at buying credit instruments or buying bonds, because I'm also at a stage in my life where I'm not looking to get rich, I'm always looking to get wealthier, but I'm especially looking to not get poor again. And so a transition from equities to bonds kind of makes sense, given where I am in my life and kind of my risk complexion.

• 26:11Ed Elson?

  What kinds of bonds are you looking at? Is it just corporate bonds or treasuries? What are you looking at?

• 26:17Scott Galloway?

  I would buy a mix. And one of the things I'd probably go into a bond fund. And one of the things we talk about in the book is the importance of diversification. And that is, you just never know. So I probably wouldn't buy a single company's bond. I might buy, if the banks that lent money to Twitter offered Twitter bonds, I would buy that debt because I think it'll trade at a huge interest rate. And I think Elon Musk is such a narcissist that he'll never let those bonds default because he wouldn't want the loss of face. And I think he's going to make a shit ton of money off of SpaceX. So we'll have the money to pay those interest rates on those bonds. But anyways, what I'll probably do is just invest in a bond fund. And that is I'll pick some sort of index fund or some sort of mutual fund, low cost, low fees,

• 26:59Scott Galloway?

  that invests in credit across a certain type of sector or region or a certain type of company.

• 27:04Ed Elson?

  We'll be right back after a quick break with a look at the latest in AI.

• 27:20Scott Galloway?

  Support for the show comes from Vanta. As AI adoption grows, so does your company's security risks and requirements. New frameworks, audits and vendors keep piling on, but your team isn't getting any bigger. Most compliance tools promise automation, but you're really stuck doing all the work by hand, chasing screenshots, validating controls and playing catch up when audit season comes around again. Vanta works differently. The regentic trust platform is built to scale with you, not slow you down. With over 1,400 automated tests across 400 plus integrations, Vanta collects evidence and monitors your controls year round, cutting your audit prep by 82%. Plus, you can access the Vanta agent everywhere you work, whether your team is in Vanta every day or living in tools including Claude or Cursor. Want proof?

• 28:05Scott Galloway?

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• 28:28Speaker 03

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• 29:03Ed Elson?

  We're back with Prof G Markets. Social media platform Reddit said it will start charging companies for access to its API. That stands for Application Programming Interface, and it's the method through which other entities can download and process your data. This will have serious implications for AI companies like Google and OpenAI that use Reddit's conversations to train their algorithms. Meanwhile, Reddit is preparing to go public this year. The company makes most of its money through ads, but plans to announce prices for its API access in the coming weeks. So Scott, this is the latest development in a larger story that's been unfolding, and that is all these generative AI programs like ChatGPT and Stable Diffusion and so on. The reason they're so powerful

• 29:48Ed Elson?

  is because they've been able to collect basically the entire corpus of data on the internet for free. And then they use that data to generate their own content. Now Reddit is not the first one to do this. Twitter recently started charging for its API as well. But the message that a lot of these tech companies are now sending is essentially, sorry, our content and our data is no longer free. Where do you stand on this issue?

• 30:11Scott Galloway?

  I think it's fascinating. I think generative AI or these large language models have an obligation to figure out some sort of licensing agreement. If they're going to come in and grab the shelves of all of your data and use that to inform the product that ultimately they spit out on the other end based on a query, they technically owe you money. If a radio station plays a bunch of Madonna songs, there is a licensing group that represents most or all artists that they send a check to. If they play a Madonna song 3,000 times, they have a calculation and they send the rights group $3,000 to go to Madonna. The rights group... Holds on to 10% of it and they send Madonna or Warner, whoever her label is, $2,700. And I think that's what needs to happen here. I was on the board of the New York Times. I don't know if you knew that, Ed.

• 30:56Scott Galloway?

  I only mention it about every 48 hours. But I remember saying, and I'm not, I'm not playing revisionist historian here. When I first went on the board, we need to shut off the crawlers from Google. We need to sit down with the new houses at Condon Ast and the Murdochs at News Corp. And the folks that own the FT, basically stop all crawling of our data by Google. Wrap it all into one big licensing agreement and then go to Microsoft, who had a viable search engine at the time, Bing, and say, who wants the most precious, valuable, aspirational content for their search engine? And basically get into a bidding war. And the reason that they refused to do it was, A, they all hated each other more than they hated Google because they were stupid.

• 31:38Scott Galloway?

  They didn't realize their real enemy was Google, not, not News Corp. or the FT or Pearson or whoever. And also they were worried about antitrust. But the same thing needs to happen here. The content providers need to, whether it's Getty Images or, you know, Musk is saying that they've been crawling his Twitter API. I don't know how true that is. But if I can go to ChatGPT and I can say, write a blog post about failing young men in the voice of Scott Galloway and it comes back with a 1,500-word blog post on struggling men with a bunch of dad jokes and it attempts to be in my voice.

• 32:17Scott Galloway?

  It's clear that the large language model has ate, digested, absorbed a bunch of our content. And if someone is able to monetize that content, specifically the end user and/or ChatGPT, and they have crawled my content as a means of informing what they expect rate on the other end, shouldn't we be compensated? So. I think this is going to end up ideally somewhere around where the music industry ended up. And there's also a strategy around here. Adobe has their own generative AI model around imagery. And one of the things they're advertising as a feature is that they own the IP or it's

• 32:59Scott Galloway?

  fair use design, meaning that no one will ever get sued here because they own the data or they have rights for use of it. So I think this is a big issue. Where it ends up is I do think they end up striking deals with the original creators. The impact it will have, though, is similar to streaming. It will be sort of a winner take most, and that is the artists that have the most work that's kind of, I don't know, the most iconic that these generative AI models want to absorb and inform their work will make a lot of money and there'll be a small amount of money for the long tail. But I think it's coming and I think it makes sense and I think they're smart. I think they need to bind together to present one unified front to the AI community.

• 33:40Ed Elson?

  Yeah, the other big story in this AI IP issue was the AI Drake song that came out a few days ago. And basically someone used an AI generator to create a song that sounded like Drake, featuring The Weeknd, sounded like The Weeknd. It got more than 600,000 streams on Spotify in just a couple of days until Universal Music Group got it taken down. And now Universal Music Group is telling all these streaming platforms that you have to block the AI systems from scraping their music. It feels like this could happen in the film industry too. But here's a more nuanced example. What about content that users create?

• 34:20Ed Elson?

  So say I create a blog post or I just message my friends or I have a conversation on Reddit. And Reddit technically owns the content there because it's part of their API. But ultimately, I was the creator, even though I wasn't necessarily trying to profit from it. And ultimately, these AI models will profit off of the content that I created. So how do you think about it from the perspective of just your average user who's messaging and creating content online? And do you think the rules still apply there?

• 34:53Scott Galloway?

  I get it in theory, but I don't think they're going to be entitled to or get payment and nor do I think that'll stop them from continuing to post. When you post content on Reddit, Implicit in that is an exchange of value. You're posting content on Reddit to enter into a dialogue, maybe to get some street cred, to ask a question, to build awareness of your ability to analyze, you know, the fundamentals of a certain stock, to express your viewpoint, to influence others. So Reddit has figured out technology and made expenditures to create that community and those network effects. And I think they are entitled, in fact, to compensation. Now, if an artist is putting out content and they're working hard and they're spending

• 35:37Scott Galloway?

  a lot of money, and then that content, as referenced in your example around Drake, is used to create another song that is driven, informed, inspired by a Drake song, I think he and his record label are entitled to compensation. But when we post blogs, when we post content on different platforms, I think that the value exchange has already happened. And if Reddit can garner additional income, then that will give them the economic motivation incentive to make the experience better and more rewarding for you. But the idea of trying to compensate, and a lot of people have talked about this, to use the blockchain such that every, every individual or user of a social media platform gets a portion of the advertising revenues that they create.

• 36:21Scott Galloway?

  I've always thought that's bullshit and a logistical and tracking nightmare. That implicit in your posting content is that there's an exchange there of value that is worth it to you. Drake puts out music because he wants to make money and he spends a lot of money trying to produce it and distribute it. He doesn't go to MySpace and put up music just hoping to get distribution. There will probably be forums for new artists who will say, go ahead and use my content, but just credit me or reference me.

• 36:51Ed Elson?

  Yeah. It sort of reminds me of the economic differences between America and China. Because in China, they have extremely weak intellectual property laws. They have barely any copyright laws. And it basically creates this economy of counterfeit products from, you know, like designer handbags and smartphones and enterprise software. And there's actually a name for this, which is Shangjai. And it's basically describes this copycat culture economy in China. And it's all by design, right? Because what it's allowed them to do is unleash this power of scale. They can create all these phones, all these algorithms. And it's been

• 37:30Ed Elson?

  A positive for them. But it feels like in America's case, if we don't start cracking down on this stuff and cracking down on these AI models and the content they use, we're basically signing up to becoming a Shangai nation where your IP is not necessarily protected, everyone can copy each other, and it's kind of a game of who can produce it the fastest and at the greatest scale. So I guess the question that we should be asking ourselves and that I'd ask you is, do we want to become that? Do we want to become a culture of produce, produce, produce at the expense of originators getting the credit and probably the compensation that they would want? My view is, by the way,

• 38:12Ed Elson?

  no, I don't want that. Selfishly, I would want to get credit for things. But how do you see it?

• 38:18Scott Galloway?

  Well, it's the difference between whether your economy is an artisanal economy or an IP theft economy. And if your economy is growing faster than, say, eight percent a year, it means you're in the business of IP theft. And by the way, America was in that business for the 18th and 19th centuries. We used to go steal manufacturing and textile technology out of Europe. We would actually kidnap artisans and we would basically rip off technology and manufacturing technology and build factories up and down the eastern seaboard. And we basically stole their IP and we printed money. Now China's doing the same thing to us. Eventually, an economy evolves into more of an artisanal economy, and that is they have their own original ideas. So you talk your own book. If you're

• 38:59Scott Galloway?

  France and you have luxury brands, you are really into hardcore IP protection. If you're India, or you're Vietnam, or you're China, where you can take something and replicate it and produce it at a lower cost, you are very much into the IP theft business. But we have always been, or not always, but for the last, I'd call it 50, 100 years, been in the business of being artisans and innovation. And we have very, very extensive detailed treaties with China that says, okay, we know people copy Microsoft Office, but it can't be state-supported, it can't be institutional, you have to crack down on it. And in exchange, we'll continue to buy your goods.

• 39:39Scott Galloway?

  So this is a huge dance done by corporations and economies everywhere.

• 39:45Ed Elson?

  Okay, final AI point, tangentially related. So there were these two research papers that came out demonstrating what ChatGPT can do. The first paper was titled, Can ChatGPT Decipher Fed Speak? And the answer was a resounding yes. It successfully figured out if central bank statements were hawkish or dovish. The second paper was titled, Can ChatGPT Forecast Stock Price Movements? The answer again was yes. The AI evaluated news headlines about public companies and then accurately predicted whether it would move up or down. Should Wall Street analysts be worried about their jobs?

• 40:22Scott Galloway?

  So first off, the research community has been decimated already. The time to worry about their jobs was 20 years ago, when they separated banking from research. And that is, I forget his name, there was some amazing Solomon analyst who was the best telco analyst. And he used to go into every telco that Solomon Brothers was looking to do their IPO and say, I'll write research on you, everyone will be aware of you, I'll wink wink, put a high price target on you if you give us investment banking business. And these research analysts were making 10 and 20 million bucks a year. And then people realized that these guys just turned into whores and weren't giving honest advice. And so they made them separate the banking business from the research business. And because research could no longer win investment banking business for the investment bank, research analysts started making a lot less

• 41:05Scott Galloway?

  money, they were less profitable, and slowly but surely, the majority of them got laid off. So the research community has already been decimated. Now, you could argue there's a, it created a vacuum and a market for independent analysts like Lynn Alden, or some companies like Sanford Bernstein, doing good independent research. I think there'll always be a market for independent research, even if it's just covering who does the best job of AI. But there's a reason why Ken Griffin is spending, I think, hundreds of millions of dollars on this. Ultimately, there will be generative AI that looks at what other people are doing and starches out the margin, similar to an arbitrator. But I think for the next two, three, five, maybe even 10 years, there's going to be an arms race here. And similar to quant trading, where the initial quant guys found signals.

• 41:50Scott Galloway?

  And we're able to discern signal from noise and make, you know, millions of bets every day on small price movements. You're going to see a new breed of hedge fund managers who will make a shit ton of money, who kind of get an edge using generative AI. I think it's a really exciting field. Now, what gets even weirder is your ability to predict their tone and their language and interest rates. I think that is super interesting, but over time it gets arbitrage out. I'm not as worried about it. Everyone else, and you didn't ask me this, thinks it's kind of this doomsday machine. I find everyone who claims it's a doomsday machine and thinks we should pause just wants to catch up and is totally full of shit. See above Elon Musk. But yeah, it's going to create alpha or, you know, whatever you want to call it.

• 42:32Scott Galloway?

  It's going to create some outsized returns for a hedge fund that figures this shit out.

• 42:37Ed Elson?

  Thanks, Scott. Let's take a look at the week ahead. We'll see the US GDP for the first quarter as well as the personal consumption expenditures index for March. And it's also a big earnings week. We've got Meta, Microsoft, Google, Amazon, UBS, First Republic, Exxon and Chevron all reporting earnings. Do you have any predictions for us?

• 42:57Scott Galloway?

  Yeah. So Apple in their next earnings report, if it's in the next couple of weeks, not this one, but the next one where they have distance from the launch of their banking product is going to report just monstrous inflows of capital and the market's going to go crazy. And on that day, Apple stock will go up and some of the biggest banks in America, their stock will go down because all of a sudden everyone will be like, fuck, here comes Apple.

• 43:24Scott Galloway?

  This episode was produced by Claire Miller and engineered by Benjamin Spencer. Jason Stavert and Catherine Dillon are the executive producers. Mia Silverio is our research lead and Drew Burrows is our technical director. Thank you for listening to Prop G Markets from the Vox Media Podcast Network. Join us on Wednesday for office hours and we'll be back with a fresh take on markets every Monday.

• 44:25Ed Elson?

  Happy 4/20, I forgot to say that. Will you celebrate?

• 44:29Scott Galloway?

  Oh, you know it, and you know how I'll celebrate. Gosh, where are those Doritos?

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